STOCK MARKET DESK

Zee News Recommendation: Buy Price target: Rs79 Current market price: Rs55.6

Result highlights

• Zee News Ltd (ZNL) has delivered a blow-out performance for Q4FY2008. Beating our and the consensus estimates, the revenues from its operations grew by a robust 59.1% year on year (yoy) to Rs113.1 crore in the quarter. The net profit after minority interest zoomed multifold to Rs15.3 crore during the same period.
• The advertising revenues soared by 84% yoy to Rs86 crore, while the subscription revenues that had grown by a meagre 7.6% in M9FY2008 grew by 49.7% yoy and 36.3% quarter on quarter (qoq) to Rs22 crore. A break-up of its channels into existing and new businesses shows that the revenues from the existing businesses grew by a handsome 53% yoy, whereas the new businesses recorded a 153% growth in their revenues.
• The operating profit margin (OPM) for the quarter stood at 23.7% against –1.3% for Q4FY2007. Hence the operating profit grew to Rs26.8 crore against an operating loss of Rs0.9 crore in Q4FY2007. The improvement in the margins of the existing businesses continued and stood at 37.2% for the quarter. The operating loss for the new businesses declined from Rs15.3 crore in Q4FY2007 to Rs10.1 crore.
• Zee Marathi and Zee Bangla, which are number one channels in their respective genres, increased their gross rating points (GRPs) by 35.7% and 18.5% respectively over Q4FY2007, whereas Zee Telugu and Zee Kannada, which form a part of the new businesses, increased their GRPs by 74.3% and 123.4% respectively and have thus increased their market share to ~10.5% against 6% and 4.5% earlier. We believe that with the continuous gain in viewership the new businesses (excluding Zee Tamil) would break even by the end of FY2009.
• The company will launch Zee Tamil by the end of July 2008 against which it has charged Rs1.39 crore as expenses in the quarter. The south Indian regional entertainment diaspora is highly competitive. However, considering the Zee group’s established track record in entertainment and the size of this market, we remain positive on Zee News’ prospects in these markets. We believe that its entertainment channels in the southern regional languages remain the key drivers of its growth in the longer term.
• At the current market price of Rs55.6, ZNL discounts its FY2009E and FY2010E earnings per share (EPS) by 23.7x and 18.1x respectively. We maintain a Buy recommendation on the stock with a price target of Rs79.